courthouseIn the spirit of the new year, we offer a review of the first five years of the Defend Trade Secrets Act (“DTSA”). The DTSA, 18 U.S.C. § 1831 et seq., was signed into law on May 16, 2016. It provides for a federal civil cause of action for trade secret misappropriation and criminal penalties for theft of a trade secret and what the statute calls “economic espionage” – theft of a trade secret knowing or intending to benefit a foreign government, instrumentality, or agent. In 2018, the Department of Justice (“DOJ”) rolled out its “China Initiative” and focused on prosecution of individuals stealing trade secrets to benefit the Chinese government. Notwithstanding this well-publicized initiative, the DTSA reaches much further – and much closer to home – than prosecuting Chinese nationals, agents, and ex-pats. In fact, some of the DTSA’s swiftest mechanisms for recovering stolen trade secrets, which are rarely invoked, are some of its most powerful.

Domestic Prosecutions Are Possible

The DTSA, assuming other criteria are met, criminalizes theft of a trade secret that “is related to a product or service used in or intended for use in interstate in foreign commerce . . . .” 18 U.S.C. § 1832(a).  While the DOJ has prosecuted international theft of trade secrets, like in the case of the China Initiative, the statute applies to domestic theft of trade secrets if the trade secret is used in even interstate commerce. Essentially, theft of a trade secret used in a multistate domestic company could constitute a federal criminal offense.

These domestic prosecutions are rare but have occurred. The DOJ’s Justice Manual states that prosecutors should consider the following factors:

(a)        the scope of criminal activity, including evidence of involvement by a foreign government, agent, or instrumentality;

(b)       the degree of economic injury to the trade secret’s owner;

(c)        the type of trade secret misappropriated;

(d)       the effectiveness of available civil remedies; and

(e)        the potential deterrent value of prosecution.

These factors make clear that domestic prosecutions for theft of trade secrets ordinarily must have an international threat tied to them, and the trade secret must be significant.

For example, in U.S. v. Cariani,[1] the defendant was employed by a defense contractor that made computer programs used by planes in the War in Terror in Afghanistan and commercially to land aircraft in low visibility situations. The defendant had a “secret” level security clearance and, before leaving the company’s employment, downloaded approximately 12,000 files related to the software to personal USB devices. The defendant was arrested, and authorities searched his devices and questioned him. Ultimately, Cariani pled guilty to theft of trade secrets under the DTSA. But this is just one rare domestic prosecution among dozens of prosecutions of international agents.

The last five years have shown that, while the DOJ has the tools to prosecute domestic theft of trade secrets, it has been reserved for sophisticated secrets with potential international reach. However, as the nation’s economy grows more dependent on protecting intellectual property rights, and as the world becomes further interconnected, a growing number of trade secrets have an international connection. Therefore, it is safe to say that the DOJ’s domestic trade secret prosecutions could increase in the years to come.

Forfeiture of Trade Secrets

The DTSA’s seizure provision is potentially one of its most potent. While prosecutors can execute search warrants to seize evidence, the DTSA empowers civil litigants to use law enforcement to seize media containing trade secrets as well. The civil seizure mechanism is rarely utilized but could pave the way for greater government involvement in trade secret prosecutions.

Ordinarily, a temporary restraining order or preliminary injunction could provide for emergency relief for civil seizure of stolen property. However, in rare occasions where an alleged offender is likely to disregard a court order and the alleged offender will “destroy, move, hide, or otherwise make” the stolen information inaccessible, in addition to other requirements, an applicant can seek seizure of the media containing the alleged trade secrets. The court may grant an application for civil seizure and order federal law enforcement to seize the media containing alleged trade secret information. Upon seizure, law enforcement provides the media containing alleged trade secret information to the court for safekeeping during the pendency of litigation. The procedure detailed in 18 U.S.C. § 1836 additionally describes requirements to keep the seizure confidential from public disclosure.

The civil seizure is a powerful weapon for civil litigants. It is an ex parte procedure – the defendant is not told that the application has been made to the court. If successful, the civil seizure operates like a seizure warrant for the allegedly stolen trade secrets, and the fact of seizure is maintained confidentially as well. Although the requirements of the civil seizure largely reflect those of the ordinary civil equitable remedies, including a showing of irreparable harm, it could be argued that the seizure procedure is more fit to protect trade secret disclosure; a defendant has no notice of the seizure before it occurs.  In contrast, temporary restraining orders or preliminary injunctions require at least an attempt to notify a defendant that the plaintiff is requesting equitable relief.

The civil seizure also involves law enforcement in the case at the very outset. The DOJ has asked private entities who face trade secret theft to report the theft to the DOJ if they require the DOJ’s assistance in “leverag[ing] [its] collective response expertise, apply[ing] [its] knowledge of cyber threats, preserv[ing] evidence, and us[ing] [its] combined authorities and capabilities to minimize asset vulnerability and bring malicious actors to justice.” As a plaintiff, civil seizure allows the DOJ to leverage that expertise and knowledge early. As a defendant, civil seizure puts a litigant on notice that the matter might soon be reported to the DOJ and that an otherwise civil matter may require a more exacting response to avoid or mitigate government prosecution.

Conclusion

Five years ago, the DTSA unified federal law with respect to trade secret misappropriation claims. Since its enactment, the DOJ has taken aim at foreign nationals, agents, and instrumentalities – most of them related to China – to protect American trade secrets. However, significant domestic assets have also been protected by prosecution. One way the DOJ could become involved early on in a trade secret misappropriation case is through the civil seizure provision of the DTSA which empowers civil litigants to petition the court to involve federal law enforcement to seize media purportedly containing stolen trade secrets. As the DTSA becomes more firmly rooted in American law and as the economy relies more heavily on trade secret information, expect domestic prosecutions and use of civil seizure to increase.

[1] No. 3:17-cr-00062-LRH-CBC (D. Nev.).